Red chip eyes asset sales to fund its push for a wider retail presence across China Red chip China Resources Enterprise plans to spend up to $2 billion expanding its supermarket chains on the mainland this year to fend off competition arising from the deregulation of the consumer market, says chairman Charley Song Lin. In his first interview since being promoted to the post in January, Mr Song said the expansion would be funded partly by proceeds from planned disposals or spin-offs of mature assets such as 19 petrol stations in Hong Kong and some on the mainland, as well as a 10 per cent interest in Hongkong International Terminal's Kwai Chung and Yantian ports. 'The asset disposals make strategic sense and will boost our war chest for expanding our presence on the mainland,' he said. With ambitions of becoming the country's largest consumer product retailer, China Resources - listed flagship of State Council investment arm China Resources (Holdings) - will add 70 outlets of its Suguo supermarket chain to the 1,000 it already runs in Anhui and Jiangsu, and open 80 China Resources Vanguard supermarkets in Zhejiang and Guangdong. At present, it has 560 stores. 'Our focus this year is to consolidate the supermarket operations to create economies of scale. We will take advantage of a full market deregulation to see if we should buy the remaining interest in Suguo,' he said, adding the group raised its stake in Suguo to 85 per cent from 73.5 per cent, and its holding in Vanguard to 100 per cent from 65 per cent recently. Under the terms of China's World Trade Organisation entry, the country has to throw its doors open to foreign investors who are allowed to wholly own operations in the retail industry this year. Analysts expect that the move will lead to an influx of overseas chain stores and spur existing players, such as Wal-Mart Stores and Carrefour, to boost their presence. 'Yes, competition will intensify. However, don't forget that the mainland market is massive and fragmented,' Mr Song said. 'We are arguably the largest retailer in Guangdong, but our share of the province's retail consumption is less than 2 per cent.' Citigroup analyst Charles Cheung warned that 'increased investment ... could lead to an oversupply of retail outlets and seriously impair recovery in China Resources' mainland supermarkets'. China Resources' retail arm, composed of supermarkets, fashion retailers and department stores, recorded a profit of $82.07 million in the first nine months last year versus a loss of $111.49 million in the same period in 2003, mainly because the Sars outbreak took a heavy toll on local consumption. With the country's rising affluence, retailers would embrace the tremendous growth in demand for consumer products, Mr Song said. 'However, the key to success is picking the right location for stores, running them with professionalism and minimising costs,' he added. Vanguard was growing so fast that he expected a turnover of about 600 million yuan this year.